Sunday, April 6, 2014

service tax on travel and tour industry



Service tax on Travel agents and tour operator
1.                   Air ticket booking by air travel agents
1.1.             Air Travel agent (ATA) issues ticket from own stock /login
Two options to pay service tax (follow any one)
Option 1: Pay service tax @ 12.36% on commission + PLB + Transaction fees
·         If transaction fees charges then service tax @12.36% shall be payable on commission + PLB + Transaction fees
·         If only transaction fees is charges and no commission or PLB is received then service tax @12.36% shall be payable on transaction fees
·         If there is no transaction fees is charged then service tax @12.36% shall be payable only on commission and PLB
Option 2: Pay service tax on basic fare @0.618% - in case of domestic tickets or @1.236% - in case of international tickets
Irrespective of transaction fees charged, commission received, service tax shall be paid on basic fare - @0.618% in case of domestic tickets or @1.236% in case of international tickets
Basic fare means that part of the air fare on which commission is normally paid to the air travel agent by the airline.
1.2.             ATA buys ticket from another agent
·         Service tax would be applicable as stated in para 1.1 above.
·         If no commission is received by agent then also service tax would be payable as above.
·         The agent to whom the service tax is charged can get the cenvat credit of service tax paid by him against service tax liability on commission received.

1.3.             Service tax on cancellation / modification charges
On cancellation and modification charges, service tax shall be leviable as per option opted at time of booking of tickets:
·         If ATA is paying service tax on basic fare option then service tax on cancellation / modification will also have to be discharged on basic fare. In such case of cancellation / modification, basic fare would be nil so there would not be any service tax
·         If ATA is paying service tax on commission then service tax on cancellation / modification will have to pay service tax @12.36% on modification / cancellation charges charged to customer.

1.4.             VISA and Passport assistance fees
ATA gets visas directly through emabassy or visa facilitation centers (VCF) authorized by embassies or visa handling agents which levy their service fees and service tax on their service fees and in turn the agents charges visa fees, service charge for visa and passport:
In such case agent would be liable to pay service tax @12.36% on total visa charges and similar charges received from customer excluding actual statutory fees towards visa separately stated in invoice. Agent can claim set off of the service tax paid to VCFs.

1.5.             Domestic and international mediclaim policies and travel insurance by travel agents
Travel agent issues mediclaim policies and travel insurance for clients through various providers and gets commission:
·         If travel agent is registered insurance agent with IRDA as per Insurance act,1938 and if the commission is received by the said travel agent from Indian insurance company then said insurance company is liable to pay service tax on commission paid to insurance agent under reverse charge mechanism
·         If travel agent is not registered insurance agent with IRDA then any amount received for travel insurance will be liable for service tax @12.36%

1.6.             International roaming SIM cards and talk time by travel agents
Travel agents sells the SIM cards and talk time i.e. recharge coupon vouchers and may get commission on the same or may add markup and sell:
·         Distributors or selling agent of SIM card or recharge coupon vouchers are exempt from payment of service tax on the amount earned/commission received for the services of selling rendered by them
·         However, if any extra charges or additional mark is added on MRP of SIM card or coupon vouchers then service tax would be applicable on such extra charges or mark up @12.36%

1.7.             Cruise booking by travel agents
1.7.1      Travel agents sell cruises and gets commission on same from master agents / ship-liner:
Such commission would be liable to service tax @12.36%
1.7.2      Travel agents sell the cruise for same price to the client or may add mark up to the price and sell the same. In both scenario service tax liability would be as follow:
·         Sell cruise at same price to clients: Say, agent has sold the booking to client for Rs. 10,000 at the same price on which booking was done by travel agent then there will not be any service tax liability, subject to invoice for the said booking by the ship-liner is in the name of client and has been attached with the invoice
·         Sells cruise at markup: If travel agent sells for Rs. 11,000 to the client which was originally booked by the travel agent for Rs. 10,000/ then in such a case the travel agent will have to charge service tax on Rs. 1,000 @12.36% if the invoice from the ship-liner is in the name on the client and the copy of the same is attached with invoice. However, if invoice from ship-liner is not in the name of client then service tax on the full value of Rs 11,000 will have to be charged by the travel @ 4.944%, if the abatement is taken.

1.8.             Domestic / International Hotel booking
1.8.1      Commission received by travel agent from hotel
If travel agent books hotel for client and hotel pays commission to agent then on such commission agent would be liable to pay commission @12.36%
1.8.2      Service charges received by travel agent from customer
If travel agent charges service charges for booking of hotel for customer then service tax can be paid in any of following option:
·         If abatement is not claimed as tour operator then pay service tax @12.36% on service fees charged to customer for booking of hotel
·         If abatement is claimed as tour operator providing services solely for arranging or booking accommodation then pay service tax @1.236% on total value of hotel charges including service fees charged to customer. If abatement is claimed then they cannot take canvat credit on input, input services and capital goods used for providing such service.

1.9.             Service tax on the tour operator
Tours organized by tour operator within India or outside India for the Indian, service tax can be paid in following manner:
1.9.1     On commission: Service tax @12.36% shall be payable by the tour operator on commission received from another tour operator.
1.9.2     On service fees received from customer:
Option 1: Service tax shall be discharged @12.36% only on service charges charged to the client towards package tour and not claim abatement.
Option 2: claim abatement on total tour package as follow:
As per notification 26/2012-ST dated 20-6-2012, service tax on tour operator is as follows:
Description of taxable service
Tax to be levied on  Percentage of taxable value
Conditions
Services  by a tour operator in relation to-
(i)  a package tour

25% of amount charged
(i) CENVAT credit on inputs, capital goods and input services, used for providing the taxable service, has not been taken under the provisions of the CENVAT Credit Rules, 2004.
(ii) The bill issued for this purpose indicates that it is inclusive of charges for such a tour.
(ii)  a tour, if the tour operator is providing services solely of arranging or booking accommodation for any person in relation to a tour

10% of amount charged
(i) CENVAT credit on inputs, capital goods and input services, used for providing the taxable service, has not been taken under the provisions of the CENVAT Credit Rules, 2004.
(ii) The invoice, bill or challan issued indicates that it is towards the charges for such accommodation.
(iii) This exemption shall not apply in such cases where the invoice, bill or challan issued by the tour operator, in relation to a tour, only includes the service charges for arranging or booking accommodation for any person and does not include the cost of such accommodation.
(iii) any services other than specified at (i) and (ii) above.
40% of amount charged
(i) CENVAT credit on inputs, capital goods and input services, used for providing the taxable service, has not been taken under the provisions of the CENVAT Credit Rules, 2004.
(ii)The bill issued indicates that the amount charged in the bill is the gross amount charged for such a tour.

“Tour operator” means any person engaged in the business of planning, scheduling, organizing, arranging tours (which may include arrangements for accommodation, sightseeing or other similar services) by any mode of transport, and includes any person engaged in the business of operating tours.
“Package tour” means a tour wherein transportation, accommodation for stay, food, tourist guide, entry to monuments and other similar services in relation to tour are provided by the tour operator as part of the package tour to the person undertaking the tour.

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Tuesday, April 1, 2014

service tax on Educational service

1.      Educational service

1.1.     Definition relating to educational service:
‘Approved vocational education courses’ (Section 65B(11 of Act) means (i) a course run by an industrial training institute or an industrial training centre affiliated to the National Council for Vocational Training or the State Council for Vocational Training offering courses in designated trades notified under the Apprentices Act, 1961  ;or (ii) a Modular Employable Skill Course, approved by the National Council of Vocational Training, run by a person registered with the Directorate General of Employment and Training, Union Ministry of Labour and Employment Finance act, 2013 has deleted following courses from definition of approved vocational education courses:
(iii) a course run by an institute affiliated to the National Skill Development Corporation set up by the Government of India
‘Auxiliary educational services’: As per the mega exemption notification, auxiliary educational services means any services relating to imparting any skill, knowledge or education, or development of course content, or any other knowledge – enhancement activity, whether for the students or the faculty, or any other services which educational institutions ordinarily carry out themselves but may obtain as outsourced services from any other person, including following services relating to:
·         admission to such institution
·         conduct of examination
·         catering for the students under any mid-day meals scheme sponsored by Government
·         transportation of students, faculty or staff of such institution.
Education as a part of curriculum for obtaining a qualification recognized by law’: As per the mega exemption notification, it means that only such educational services are in the negative list as are related to delivery of education as ‘a part’ of the curriculum that has been prescribed for obtaining a qualification prescribed by law. It is important to understand that to be in the negative list the service should be delivered as part of curriculum. Conduct of degree courses by colleges, universities or institutions which lead grant of qualifications recognized by law would be covered.
1.2.     Exemption under negative list:
As per section 66D(l) of the act, following services would be exempt provided by way of-
(i)      pre-school education and education up to higher secondary school or equivalent
(ii)    education as a part of a curriculum for obtaining a qualification recognised by any law for the time being in force;
(iii)  education as a part of an approved vocational education course;
1.3.     Exemption under mega exemption notification
Exemption under mega exemption notification, 25/2012-ST dated 20.6.2012: As per entry no. 9 following services provided to an educational institution in respect of education would be exempted from service tax:-
(a)     auxiliary educational services; or
(b)     renting of immovable property
Further, Services by way of training or coaching in recreational activities relating to arts, culture or sports would be exempt from service tax. (Entry no. 8)
1.4.     Taxability of services:
Vide Finance act, 2013, services provided by an educational institution by way of auxiliary educational services or renting of immovable property would not be exempt from service tax from 1st April, 2013.
As per Guidance notes on service tax issued by CBEC on 20th June, 2012, following services relating to education would be taxable or exempt from service tax:
·         Training given by private coaching institutes would not be covered as such training does not lead to grant of a recognized qualification.
·         International schools: services provided by international schools giving certifications like IB would also covered in this entry
·         Boarding schools: Boarding schools provide service of education coupled with other services like providing dwelling units for residence and food would be covered in this entry irrespective of charges for education and lodging and boarding are separable or inseparable.
·         Service to or by Educational institutions: services provided to or by an educational institution by way of,-(a) auxiliary educational services; or (b) renting of immovable property, in respect of education exempted from service tax.
·         Auxiliary educational services: The auxiliary educational services for all educational institutions are not exempt. Exemption is available for services to or by educational institutions in respect of education exempted from service tax. Therefore, service tax is chargeable on such auxiliary educational services which are in respect of education chargeable to service tax.
·         Foreign courses: To be covered in the negative list a course should be recognized by an Indian law. Hence, services provided by way of education as a part of a prescribed curriculum for obtaining a qualification recognized by a law of a foreign country would not be covered in the negative list entry.
·         Dual course - recognized and unrecognized courses: Course in a college which leads to dual qualification and only one of which is recognized by law then valuation of such services would be determine by applicable of by application of the rule of determination of taxability of a service which is not bundled in the ordinary course of business contained in section 66F of the Act it is liable to be treated as a course which attracts the highest liability of service tax. However incidental auxiliary courses provided by way of hobby classes or extra-curricular activities in furtherance of overall well being will be an example of naturally bundled course.
·         Placement services: Placement services provided to educational institutions for securing job placements for the students would not be covered in this negative list entry.
·         Fees charged from employer for placement: Educational institutes such as IITs, IIMs charge a fee from prospective employers like corporate houses/ MNCs, who come to the institutes for recruiting candidates through campus interviews. Such services provided by such institutions are taxable services.
Admission test fees: Services of conducting admission tests for admission to colleges provided by educational institution which are providing qualification recognized by law are exempt from service tax.To join google group regular updates or query on service tax send mail to handbookonservicetax@gmail.com
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service tax on construction Activity

1.      Construction Activity


1.1.     Validity of levy of service tax
In Maharashtra Chamber of Housing Industry v. UOI (2012) 34 STT 384 (Bom HC), the constitutional validity of levy of service tax on construction service has been upheld.
1.2.     Definition
With effect from 01-07-2012, the following definition of “Works Contract” as given in Section 65B(54) of the Act is applicable:
"works contract" means a contract wherein transfer of property in goods involved in the execution of such contract is leviable to tax as sale of goods and such contract is for the purpose of carrying out construction, erection, commissioning, installation, completion, fitting out, repair, maintenance,  renovation, alteration of any movable or immovable property or for carrying out any other similar activity or a part thereof in relation to such property;
1.3.     Activities considered as Construction services
With effect from 1-7-2012 all activities relating to construction fall within the purview of following “Declared Services” under section 66E of finance act, 1994:
66E(b): Construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration is received after issuance of completion-certificate by the competent authority.
66E(h): Service portion in the execution of a works contract.
Illustrative list of services in relation to construction activities would be taxable:
·         Construction of boundary wall
·         Construction of parking wall
·         Services in respect of cutting of plots and development of colonies received by builders
·         Construction of residential complex and units ranging between 2-12 units (more than one unit)
·         Construction of private roads
·         Construction services provided to non-commercial organization in respect of building which are used for other than religious purpose.
·         Services provided in respect of construction of hospitals to any person other than government or government authorities or local authorities
·         Services provided in respect of construction of building to be used for the purpose of education to any person other than government or governmental authorities or local authorities
1.4.     Exemption to certain Construction activity
Following construction activities stated in entry no. 12, 13 & 14 are exempted by notification 25/2012 dated 20-06-2012:
   i.      Services provided to the Government, a local authority or a governmental authority by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of -
(a)     a civil structure or  any other original works meant predominantly for  use other than for commerce, industry, or any other business or profession;
(b)     a historical monument, archaeological site or remains of national importance, archaeological excavation, or antiquity specified under the Ancient Monuments and Archaeological Sites and Remains Act, 1958 (24 of 1958);
(c)     a structure meant predominantly for use  as (i) an educational, (ii) a clinical, or  (iii) an art or cultural establishment; 
(d)    canal, dam or other irrigation works;
(e)     pipeline, conduit or plant for (i) water supply (ii) water treatment, or (iii) sewerage treatment or disposal; or
(f)      a residential complex predominantly meant for self-use or the use of their employees or other persons specified in the Explanation 1 to clause 44 of section 65 B of the said Act;
 ii.      Services provided by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of,-
(a)     a road, bridge, tunnel, or terminal for road transportation for use by general public;
(b)     a civil structure or  any other original works pertaining to a scheme under Jawaharlal Nehru National Urban Renewal Mission or Rajiv Awaas Yojana;
(c)     a building owned by an entity registered under section 12 AA of the Income tax Act, 1961(43 of 1961) and meant predominantly for religious use by general public;
(d)    a pollution control or effluent treatment plant, except located as a part of a factory; or
(e)     a structure meant for funeral, burial or cremation of deceased;
iii.      Services by way of construction, erection, commissioning, or installation of original works pertaining to,-
(a)     an airport, port or railways, including monorail or metro;
(b)     a single residential unit otherwise than as a part of a residential complex;
(c)     low- cost houses up to a carpet area of 60 square metres per house in a housing project approved by competent authority empowered under the ‘Scheme of Affordable Housing in Partnership’ framed by the Ministry of Housing and Urban Poverty Alleviation, Government of India;
(d)    post- harvest storage infrastructure for agricultural produce including a cold storages for such purposes; or
(e)     mechanised food grain handling system, machinery or equipment for units processing  agricultural produce as food stuff excluding alcoholic beverages;
1.5.     Relevance of completion certificate in construction services:
Completion certificate plays a vital role in determining the taxability of activity. The entire activity of builder / developer would be deemed to be service only if any amount has been received prior to issuance of completion certificate by a competent authority.  If any amount is received after issuance of completion certificate, then the activity would be a mere transfer of title in immovable property and thereby doesn’t fall within definition of service.
“Competent authority” means the government or any authority authorized to issue completion certificate under any law for the time being in force and in case of non requirement of such certificate from such authority, from any of the following namely:-
a)       Architect registered with the council of architecture constituted under the architects act, 1972 or
b)       Chartered engineer registered with the institution of engineers (India); or
c)       Licensed surveyor of the respective local body of the city or town or village or development or planning authority.
1.6.     Valuation of service portion under works contract:
For valuation of service portion under construction, following 3 options are available:
Option 1- Actual method: As per rule 2A(i) of service tax (Determination of value) Rules, 2006, inter alia, provides that the value of service portion in the execution of a works contract is the gross amount charged for the works contract less the value of transfer of property in goods involved in the execution of the said works contract. Accordingly, taxable value of service portion in execution of a works contract can be determined in following manner:
A
Gross amount charged for the works contract  (Note 1)
   XXXXX
B
Less: value of property in goods transferred in execution of works contract (Note 2)
  ( XXXXX )
C
Net amount chargeable for service Tax (A-B)
   XXXXX
D
Service Tax on ‘C’ above
    XXXXX
E
Input CENVAT credit
     NIL
F
Net Service Tax payable (D-E)
    XXXXX
Note 1: Gross amount of works contract shall include:
         I.            labour charges for execution of the works;
       II.            amount paid to a sub-contractor for labour and services;
     III.            charges for planning, designing and architect’s fees;
    IV.            charges for obtaining on hire or otherwise, machinery and tools used for the execution of the works contract;
      V.            cost of consumables such as water, electricity, fuel used in the execution of the works contract;
    VI.            cost of establishment of the contractor relatable to supply of labour and services;
  VII.            other similar expenses relatable to supply of labour and services; and
VIII.            profit earned by the service provider relatable to supply of labour and services;
Note 2:  For value of property in goods transferred in execution of works contract:
Value added tax or sales tax has been paid or payable on the actual value of property in goods transferred in the execution of the works contract, such value adopted for the purposes of payment of value added tax or sales tax, shall be taken as the value of property in goods transferred in the execution of the said works contract.
Option 2 - Abetment for goods portion: As per rule 2A(ii) of service tax (Determination of value) Rules, 2006, taxable value of service portion in execution of a works contract can be determined in following manner:
A
Total amount charged for works contract (Note 1)
XXXXX
B
Value of Taxable amount for Service tax:
For Original works (Note 2) – 40% of value of ‘A’
For maintenance or repair or reconditioning or restoration or servicing of any goods – 70% of value of ‘A’
For any other case - 60% of value of ‘A’
XXXXX
C
Service Tax on value ‘B’
XXXX
D
Input Cenvat Credit
NIL
E
Net Service Tax payable (C-D)
XXXXX

Note: 1 Total amount charged for works contract means:
A
Gross amount charged for the works contract
XXXX
B
Fair market value of all goods and services supplied in or in relation to the execution of the works contract (@)
XXXX
C
Less:
 (i) the amount charged for such goods or services, if any; and
(ii) the value added tax or sales tax, if any, levied thereon
(XXXX)
D
Amount charged for the works contract (A+B-C)
XXXXX
(@) Fair market value of goods and services so supplied may be determined in accordance with the generally accepted accounting principles.
Note 2: (a) “original works” means-
(i) all new constructions;
(ii) all types of additions and alterations to abandoned or damaged structures on land that are required to make them workable;
(iii) erection, commissioning or installation of plant, machinery or equipment or structures, whether pre-fabricated or otherwise
Cenvat credit: Under above both options, provider of taxable service shall not take CENVAT credit of duties or cess paid on any “inputs”, used in or in relation to the said works contract. However, CENVAT Credit of duties or cess paid on any “input service” or on any “capital goods” is allowed under above all options.
Option 3: Valuation of service portion for construction of complex, building, civil structure or part thereof: According to notification no. 26/2012 dated 20-6-2012 & 2/2013 dated 1st March, 2013, with effect from 1st March, 2013, in respect of construction of complex, building, civil structure or a part thereof which is intended for a sale to a buyer, wholly or partly, service tax is payable on the following part of the amount charged by such service provider:
Description of taxable service
Tax to be levied on percentage of taxable value
Condition
Construction of a complex, building, civil structure or a part thereof, intended for a sale to a buyer, wholly or partly except where entire consideration is received after issuance of completion certificate by the competent authority,-
(i) for residential unit having carpet area upto 2000 square feet or where the amount charged is less than rupees one crore
(ii) for other than the (i) above





25%


30%
(i) CENVAT credit on inputs used for providing the taxable service has not been taken under the provisions of the CENVAT Credit Rules, 2004;

(ii) The value of land is included in the amount charged from the service receiver

1.7.     Point of taxation for construction services:
As per rule 3 of the Point of Taxation Rules,2011 , the service tax liability would be calculated on the basis of the earliest of the following four dates, viz.
·         Date on which service is provided
·         Date on which service is to be provided
·         Date of the invoice raised by the works contractor
·         Date of receipt of the money
Accordingly, under the Point of Taxation Rules, a service provider would be liable to pay on the date he is to provide a service, despite that, he has not actually rendered the service nor has he got paid for the services rendered/to be rendered. In the case of construction contract, it is common in such contracts that certain milestone are defined for triggering payment to be made by the service recipient to the service provider. Accordingly, service tax has to be paid on triggering of such milestones irrespective of whether invoice is raised or payment is received. For e.g.
A realty developer/builder enters into an agreement to construct, with his prospective buyer/customer and agrees, as follows, for a construction value of, let's say, Rs 100 lakhs
·         25% of the amount to be paid on signing of the agreement on April 2, 2011
·         25% of the amount to be paid on July 1, 2011, on completion of the laying of the slabs
·         25% to be amount to be paid on December 1, 2011, on completion of the basic structure
·         Final installment of 25% to be paid on March 31, 2012, on possession
However, upto March 31, 2012, the developer/builder has not carried out any activity.
As per Point of taxation rules, the said developer/builder would be liable to pay service tax on July 1, 2011, December 1, 2011 and March 31, 2012, on the amounts of Rs 25 lakhs each, despite that the developer has not even commenced the construction activity and has not received any amounts from the customer.
1.8.     Liability to pay service tax:
In following cases who will be liable to pay service tax:
Particulars
Situation -1
Situation -2
Land owned by
Builder / developer
CHS
Development work carried out by
Builder / developer itself through various agencies
CHS by appointing various agencies
Sale proceeds received by
Builder / developer
CHS
Person liable for ST as builder
Builder / developer
CHS
1.9.     Clarification from CBEC in Guidance note issued on 20th June, 2012:
·         Reconstruction of building by society: Land is owned by a society, comprising members of the society with each member entitled to his share by way of an apartment. Society /individual flat owners give ‘No Objection Certificate’ (NOC) or permission to the builder/developer, for re-construction. The builder/developer makes new flats with same or different carpet area for original owners of flats and additionally may also be involved in one or more of the following: (i) construct some additional flats for sale to others; (ii) arrange for rental accommodation or rent payments for society members/original owners for stay during the period of reconstruction; (iii) pay an additional amount to the original owners of flats in the society.
Under this model, the builder/developer receives consideration for the construction service provided by him. Hence, Re-construction undertaken by a building society by directly engaging a builder/developer will be chargeable to service tax as works contract service for all the flats built now.
·         Flats to land owner: When a certain number of flats are given by the builder/developer to a land owner in a collaborative agreement to construct, in lieu of the land or development rights transferred, in such case transferee would be required to pay service tax on further sale of flats to customers, if any consideration is received by him from any person before the receipt of completion certificate.
·         Renovation: If the renovation activity is done on contract basis, the same would be a taxable as works contract even if such renovation makes conversion of any construction/ complex or part thereof into a building or civil structure to be used for commerce or industry.
·         Build-operate-Transfer (BOT) project between Government, concessionaire (who may be a developer/builder himself or may be independent) and the users:
o    At first level Government transfers the right to use and/or develop the land, to the concessionaire: Consideration for this service may be in the nature of upfront lease amount or annual charges paid by the concessionaire to the Government. Such services provided by the “Government’ would be in the negative list entry contained in clause (a) of section 66D unless these services qualify as ‘support services provided to business entities’ under exception sub-clause (iv) to clause (a) of section 66D. If the nature of concession amounts to ‘renting of immovable property service’ then the same would be taxable and the tax is required to be paid by the government.
o    Second level concessionaire construct building: If concessionaire construct building by own then concessionaire would not liable for service tax; but if concessionaire appoints an independent contractor for construction then service tax is payable service provided by contractor to concessionaire.
o    Third level concessionaire enters into agreement with several users for commercially exploiting the building developed/constructed during the lease period: If the user pays a rent or premium on the sub-lease for temporary use of immovable property or part thereof, to the concessionaire then concessionaire would be liable to service tax on such amount received from users.
·         Receive fixed deposit instead of sale consideration: If the builder instead of receiving consideration for the sale of an apartment receives a fixed deposit, which it converts after the completion of the building into sales consideration, then it would amount to receiving any amount before the completion of service and also interest earned on such fixed deposit would be consider as gross amount charged for service and same would be liable for service tax.
·         If requirement of completion certificate is waived of for certain types of building: in such case the completion certificate issued by an architect or a chartered engineer or a licensed surveyor of the respective local body or development or planning authority would be treated as completion certificate.  
·         Investment model: In this model, before the commencement of the project, the same is on offer to investors. Either a specified area of construction is earmarked or a flat of a specified area is allotted to the investors and as it happens in some places, additionally the investor may also be promised a fixed rate of interest. After a certain specified period an investor has the option either to exit from the project on receipt of the amount invested alongwith interest or he can re-sell the said allotment to another buyer or retain the flat for his own use.
In this model, investment amount shall be treated as consideration paid in advance for the construction service to be provided by the builder/developer to the investor and the said amount would be subject to service tax. If the investor decides to exit from the project at a later date, either before or after the issuance of completion certificate, the builder/developer would be entitled to take credit under rule 6(3) of the Service Tax Rules, 1994( to the extent he has refunded the original amount). If the builder/developer resells the flat before the issuance of completion certificate, again tax liability would arise.
·         Joint Development Agreement Model: Under this model, land owner and builder/developer join hands and may either create a new entity or otherwise operate as an unincorporated association, on partnership /joint / collaboration basis, with mutuality of interest and to share common risk/profit together. The new entity undertakes construction on behalf of landowner and builder/developer. In such cases, service tax will be payable.
1.10. Miscellaneous FAQ
·         In cities like Mumbai, building is being demolished and new building with better amenities and additional floor space Index (FSI) are constructed. In such cases, the existing owners of the flat are required to make some payment for allotment of additional floor space in newly constructed building. Whether such amount received will be taxable for builder?
Yes, amount received by builder for allotment of additional floor space would be liable for service tax.
·         What if buyer of flat transfer before paying full installments and before completion of building transfers, whether service tax would be applicable or not on such transfer?
No, service tax would not be liable on such transfer as such transfer does not fall in declared service entry as the said person is not providing any construction service.
·         What will happen if during the period of construction the prospective buyer has cancel purchase of flat and the builder refunds the amount received?
Rule 6(3) of service tax rules provides for adjustment of excess service tax paid, provided the service provider has refunded the value of taxable service and the service tax thereon to the person from whom it was received.
·         Whether refund of service tax paid by prospective buyer can be claimed, if the builder having collected the money from prospective buyer is not in a position to construct the property for various reasons for a long time?
There are no provisions for refund of tax paid. The prospective buyer has no right to claim any refund of the tax paid by him to builder.
·         Whether refund of service tax paid by prospective buyer can be claimed, if the builder, for some reason does not carry out any construction activities, drop the project and informs the government?
In such case refunding the tax to builder will amount to unjust enrichment. Accordingly, the buyer will not be able to get any refund of tax paid.
·         In majority of cases completion certificate are not issued for a long period of time. However, meanwhile, the buyer takes possession of the flat and after taking possession but before getting completion certificate, it is sold to another person. Whether service tax is required to pay on second sale?
No. Service tax is not required to be paid on the second saleTo join google group regular updates or query on service tax send mail to handbookonservicetax@gmail.com
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